Stockscom Report for Sunday July 30 2006

Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)

Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)

· Second quarter GDP released

Market Synopsis

The 19^th century British Prime Minister, Benjamin Disraeli, had it right when he said that there were three kinds of lies: lies, damned lies and statistics. The latest GDP data were released on Friday and with them was an associated report, the annual benchmark revisions. Inside this document there were many examples of statistical adjustments that demonstrate clearly that the rebound from the recession in 2001 was even weaker than first measured.

For example, in 2005, employee compensation was initially estimated as $7.113 trillion however this figure was revised lower in the latest report to $7.03 trillion, a drop of $83 billion, a not unsubstantial sum. While the sheer size of the number is astounding, it also represents a reduction of the compensation growth rate from 2.9% to 2.3% in constant dollars. Of the 2.3% increase, wages represents approximately 1.8% and since the workforce expanded 1.3%, the real wage increase for the average worker was 0.5%. Before this report was released, the increase in compensation was presumed to be 2.9% and the wages portion to be 2.2% thus the real wage increase per worker would have approximated 0.9% or just a little less than double the actual value.

Elsewhere, the GDP figures for the past three years were revised lower to an average growth rate of 3.2% from 3.5%. In annual terms, the revision for 2003 took real GDP from 4.0% to 3.7%, from 3.8% to 3.4% for 2004, and from 3.2% to 3.1% for 2005. The rebound since the recession trough in the 3^rd quarter 2001 until the end of the 1^st quarter of 2006 is now evaluated at 3.1% annually instead of the previously accepted 3.3% - a significant difference when compounded over this term.

Nonetheless, this recovery was already considerably weaker than previous recoveries post-WWII, which have been measured as an average growth rate of 4.2% (using a 17 quarter period after trough). This difference of 35% in growth certainly would have been helpful in defusing the ticking time bomb related to the current account deficit and the taxes generated would have kept the budget deficit lower.

Ironically the effects all of these revisions pale over the very short term in comparison to the immediate news of slowing growth of 2.5% for the second quarter of 2006. The unexpectedly low rate has converted many analysts into believers that Fed Chairman Ben Bernanke would pause at this juncture at the next FOMC meeting on August 8. As he already pointed out to Congress, a slowing economy would remove inflationary pressures thus permitting him to ignore the latest reading on the employment cost index, which was itself, the fastest growth in employment costs since early 2005 in the just completed quarter.

Technically Speaking

The boost to stock prices caused by the release of GDP figures on Friday may be ephemeral given that the previous day’s activity led to additional sell signals on some indexes. Perhaps most telling was the substantial drop in trading volume (on Friday) that occurred signaling that indeed, one should not depend heavily on the latest rebound.

The Dow Jones and the S&P 500 maintained their status as the strongest of the indexes nearing their July highs on Friday. If they were to break through nominal resistance at this point, a short hop would take them quickly to their respective June highs. Nevertheless, the tech sector as represented by Nasdaq remains mired in an extremely bearish trend, which shows no sign of relenting. A rebounding broader market is unsustainable without the participation of this very important tech sector.

One should also keep in mind that the reason for the latest surge on Friday was due to the news that GDP was slowing for this meant that the Fed’s propensity to pause in its cycle of interest rate hikes has increased substantially. However a slowing economy or one which may be heading toward recession is not one to generate higher stock prices until such time that the bottom has been reached or is at least visible in the distance.

New Buy Recommendations (in order of preference):

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

None.

Portfolio Comments:

New stops have been added to the list while others have been modified. Those that have blanks, are being carried unstopped for now. Please see our complete list of stops in the table below.

List of Current Stock Recommendations:

Action Ratings. The following is the legend for designating immediate action
for our stock recommendations. The first is B, meaning the stock is timely
to buy but the case for doing so right here is not overwhelming. Either the
stock may have gotten ahead of itself and may be vulnerable to a retracement or
else the stock has been performing disappointingly but may simply be
regrouping. B+ and B++ indicate stocks for which there is a technical case
to buy now, with plusses adding weight according to how many there are, up
to a maximum of two. Stocks rated H are ones to hold, awaiting confirmation
to buy more or to sell. SELL, of course, means what it says. It seldom pays
to override this designation. In the case of stocks held short, the rating is S where positions should be retained. S+ and S++ indicate stocks for which there is a technical case to add to the positions with plusses adding weight similar to long positions. The maximum number of plus signs is 2.

N.B. There are no longer restrictions on foreign stocks held in Canadian retirement savings accounts.

Date of Entry	Name	Symbol	Entry Price	Current Price	Stop	Action Rating
07/03/06	Seabridge Gold	SA	12.11	13.18	10.00	B

Short Sales:

Date of Entry	Name	Symbol	Entry Price	Current Price	Stop	Action Rating
07/10/06	Ebay	EBAY	26.92	24.43	27.50	S
07/10/06	Getty Images Inc	GYI	57.60	46.95	55.10	S
07/24/06	Red Hat Inc	RHAT	23.37	23.96	25.50	S

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price